Australia: Private business capex fell by 2.5% in Q2 2018 - Westpac

Andrew Hanlan, Research Analyst at Westpac, notes that in the June quarter, Australia’s private business capex fell by 2.5%, which was a downside surprise (market median 0.6%, Wespac 0.3%).

Key Quotes

“Implications for Q2 GDP: our forecast for Q2 GDP remains 0.6%qtr, 2.7%yr. Risks to this forecast, which we had seen as being skewed to the upside, are now more evenly balanced.”

“2018/19 capex plans: Est 3 is $102bn, -1% vs Est 3 a year ago.”

“The $102bn figure is a relatively neutral update (in terms of the headline figure), broadly in line with Estimate 2, $88bn. However, the mix is arguably less encouraging, with non-mining less upbeat relative to 3 months ago.”

“The Est 3 on Est 3 figures by industry are: mining -4% (vs -6% 3 months ago); services is flat (from +5%) and manufacturing +3% (from +6%).”

“Using calculation based on average realisation ratios (RRs), we estimaetd that Est 3 implies capex spending in 2018/19 will be 2.7% lower than in 2017/18. This is in line with the -2.3% implied by Est 2, hence our interpretation of a relatively neutral headline.”

“The 3rd estimate of non-mining capex plans is less upbeat, at +1% (vs +5% 3 months ago). Our central case forecast is more in line with the Est 2 reading, consistent with other indicators such as the sizeable pipeline of non-residential building work yet to be done and the uptrend in infrastructure work (particularly investment in renewables power generation).”